Pinnacle Airlines has entered into an agreement with Continental Airlines to increase the number of Q400 aircraft operated by Colgan Air, PNCL's wholly owned subsidiary, as a Continental Connection carrier. Colgan will purchase and take delivery of 15 additional Q400 aircraft to be operated under the capacity purchase agreement (the “CPA”) between Continental Airlines and Colgan. The aircraft will be delivered between August 2010 and April 2011.
Each aircraft will be operated for a period of ten years under the CPA subject to the existing rates, terms and conditions of the CPA, provided that certain rates paid to Colgan will increase commensurate with the increase in the purchase price of the aircraft. Upon delivery of these aircraft, Colgan will operate 30 Q400 aircraft under its CPA as a Continental Connection carrier.
In connection with this transaction, PNCL has arranged for a financing commitment from a lender to finance up to 85% of the purchase price of each aircraft and to finance most predelivery payments required to be made to the manufacturer between now and the time of delivery. All cash payments that are required to be made to the manufacturer prior to the second quarter of 2010 will be financed subject to this financing commitment. The financing commitment contains standard provisions related to PNCL's financial condition that must be met prior to requesting draws. In addition, PNCL expects to pursue lease financing to reduce its capital requirements associated with the acquisition of these aircraft.
